A divided House panel on Thursday approved legislation aimed at reversing structural changes to the $2.7 trillion money-market mutual-fund industry, a blow to large asset-management firms such as BlackRock Inc. and Fidelity Investments that oppose the measure.
The House Financial Services Committee voted 34-21 to advance the legislation, which would allow certain money-market mutual funds to return to offering investments with stable, $1 share prices by scrapping a postcrisis rule that they float in value.
Still, the bill advanced without the support of key members of the panel, including Maxine Waters (D., Calif.) and Rep. Bill Huizenga (R., Mich.), dimming prospects for the legislation to advance through the House by a wide, bipartisan margin. Division over the bill in the House will likely complicate its ability to gain traction in the Senate.
Money-market funds are investments designed to be a safe place to park cash temporarily with little risk of taking a loss. For years, they generally offered investors $1 back for each $1 they invested, an expectation that triggered a stampede out of some funds catering to large institutions during the 2008 financial crisis when it became clear investors might get less than a dollar back, called "breaking the buck."
Thursday's bill would overturn a 2014 Securities and Exchange Commission requirement that a subsection of money-market mutual funds -- those whose shares are held by institutions and that purchase corporate debt or municipal bonds -- float in value like other mutual funds.
The money-fund bill created unusual divisions on the panel, drawing support and opposition from different bipartisan groups. That contrasts with other controversial legislation that tends to divide lawmakers largely along party lines.
Supporters said that the bill would help state and local governments squeezed by the 2014 restrictions and that earlier changes to the funds, adopted by the SEC in 2010, already boosted the funds' safety. Those changes, they say, made another shareholder stampede less likely by increasing the amount of cash and cashlike assets funds are required to have on hand to meet redemptions.
"I am highly supportive of those rules and think that enhanced liquidity requirements largely eliminate any run-related need for the floating [share price]," said Rep. Gwen Moore (D., Wis.), who co-sponsored Thursday's bill.
Big asset-management firms such as BlackRock and Fidelity argued the industry has already spent millions of dollars to comply with the SEC's 2014 structural changes and that they shouldn't be reversed. They are loath to relive a bruising fight over the structure of the funds that lasted several years, according to people familiar with their thinking.
The Investment Company Institute, the fund industry's top trade group, had been neutral on the bill until earlier this month but came out against it in the lead-up to the vote.
One factor in its opposition: concerns by certain, unnamed ICI members that undoing the structural changes could revive efforts in a future presidential administration to designate large asset managers as "systemically important financial institutions" and subject them to stricter federal oversight, according to an internal ICI memo reviewed by The Wall Street Journal.
Both BlackRock and Fidelity were under consideration as SIFIs but avoided the designation during the Obama administration.
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(END) Dow Jones Newswires
January 18, 2018 12:53 ET (17:53 GMT)